Month: August 2010

First of all, I want to ask my readers to please excuse the fact that I haven’t posted here for awhile. Various activities have kept me quite busy, leaving me little time to write.

I was sent a link to the following post today, and think it is an exceedingly important bit of information that investors need to read and assimilate, so I am passing it on to you.

Writing in zerohedge.com, a site which I have found consistently has valuable financial information, Gonzalo Lira proposes a scenario, the inevitable result of which is hyperinflation in America, and the world. He distinguishes between Inflation, and Hyperinflation:

But hyperinflation is not an extension or amplification of inflation. Inflation and hyperinflation are two very distinct animals. They look the same—because in both cases, the currency loses its purchasing power—but they are not the same.

Inflationis when the economy overheats: It’s when an economy’s consumables (labor and commodities) are so in-demand because of economic growth, coupled with an expansionist credit environment, that the consumables rise in price. This forces all goods and services to rise in price as well, so that producers can keep up with costs. It is essentially a demand-driven phenomena.

Hyperinflationis the loss of faith in the currency. Prices rise in a hyperinflationary environment just like in an inflationary environment, but they rise not because people want more money for their labor or for commodities, but because people are trying to get out of the currency. It’s not that they want more money—they want less of the currency: So they will pay anything for a good which is not the currency.

He gives the likely scenario that will signal the start of hyperinflation and concludes that the only likely result of the massive deficits this administration is creating, as it seeks to prop up aggregate demand levels by way of fiscal “stimulus” spending—the classic Keynesian move, is hyperinflation.

But this Fed policy—call it “money-printing”, call it “liquidity injections”, call it “asset price stabilization”—has been overwhelmed by the credit contraction. Just as the Federal government has been unable to fill in the fall in aggregate demand by way of stimulus, the Fed has expanded its balance sheet from some $900 billion in the Fall of ’08, to about $2.3 trillion today—but that additional $1.4 trillion has been no match for the loss of credit. At best, the Fed has been able to alleviate the worst effects of the deflation—it certainly has not turned the deflationary environment into anything resembling inflation.

Therefore, the notion of talking about hyperinflation now, in this current macro-economic environment, would seem . . . well . . . crazy. Right?

Wrong: I would argue that the next step down in this world-historical Global Depression which we are experiencing will be hyperinflation.

I would highly recommend that you take 10 minutes and read the whole article. Being informed about what is likely to occur will enable you to take the necessary steps to be prepared for it. You don’t want to be the deer in the headlights when the car comes around the bend.